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GAO-12-897R: 

United States Government Accountability Office:
Washington, DC 20548: 

August 1, 2012: 

The Honorable G.K. Butterfield:
House of Representatives: 

The Honorable Don Manzullo:
House of Representatives: 

The Honorable Gregory W. Meeks:
House of Representatives: 

The Honorable Dave Reichert:
House of Representatives: 

Subject: Ensuring Drug Quality in Global Health Programs: 

The United States supports global health programs primarily through 
the U.S. Agency for International Development (USAID) and the Centers 
for Disease Control and Prevention (CDC) and by providing 
contributions to the Global Fund to Fight AIDS, Tuberculosis and 
Malaria (Global Fund). USAID and CDC implement the President's 
Emergency Plan for AIDS Relief (PEPFAR), which provides antiretroviral 
treatment to more than 3.9 million people, and the President's Malaria 
Initiative (PMI), which has procured and distributed over 67 million 
malaria treatments. In addition, the Global Fund provides 
antiretroviral drugs to about 3.3 million people, has supported 
tuberculosis treatment for 8.6 million, and enabled treatment of 170 
million malaria cases. 

Concerns have been raised about the potential for substandard drugs to 
enter the supply chains of global health programs. Substandard drugs, 
which may be caused by poor manufacturing practices, improper storage 
or distribution, or tampering, can have serious public health 
consequences. These include ineffective treatment of diseases, adverse 
reactions in patients, and drug resistant strains of pathogens. 

Given these concerns about substandard drugs, we were requested to 
review safeguards in place to ensure drug products procured with U.S. 
foreign aid funds are of assured quality.[Footnote 1] We examined (1) 
the regulatory and policy requirements intended to ensure the quality 
of drugs procured with U.S. aid funds and (2) the systems in place to 
monitor drug quality in supply chains used by programs receiving U.S. 
foreign aid funds. 

[End of section] 

Scope and Methodology: 

Our work focuses on drugs and other commodities with pharmaceutical 
ingredients purchased by USAID, CDC, and the Global Fund for use in 
global health programs. To address our objectives, we reviewed 
relevant laws, regulations, agency policy guidance, and standard 
operating procedures relating to assurance of drug quality and supply 
chain monitoring, as well as reports on program implementation. We 
also interviewed USAID, CDC, and Global Fund officials knowledgeable 
about drug procurement and supply chain systems. 

We conducted this performance audit from February 2012 to August 2012 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

We briefed congressional requesters' staff on our findings on May 31, 
2012. This report summarizes that briefing, which is reprinted in full 
as enclosure I. 

Background: 

USAID, CDC and the Global Fund provide grants, contracts, or 
cooperative agreements to implementing partners, who execute health 
activities with drugs they procure from manufacturers or wholesalers. 
Implementing partners include host country governments, for-profit 
development assistance firms, nonprofit nongovernmental organizations, 
and United Nations organizations. Challenges to ensuring drug quality 
include the global pharmaceutical industry's increasing reliance on 
foreign manufacturers, especially in India and China, and difficulties 
overseeing their production processes. Also, in developing countries, 
drug theft and diversion to informal markets can result in tampering, 
improper storage, and inappropriate use. 

Results in Brief: 

U.S.-funded global health programs have put regulatory and policy 
requirements in place to help prevent procurement of substandard 
drugs. USAID, for example, reviews quality assurance information for 
all drugs before they are procured. Specifically, USAID requires 
implementing partners to obtain written approval from the agency 
before purchasing drugs. Through its approval process, USAID 
determines whether there is sufficient information available to assure 
that the drug is of acceptable quality. Although USAID's review 
process varies for some drugs, the type of information USAID reviews 
generally includes prior FDA approval of the drug or approval by a 
comparable stringent regulatory authority, as well as results of prior 
testing of the drug by an independent laboratory. As an additional 
quality assurance measure, USAID prequalifies selected wholesalers to 
procure drugs for U.S.-funded global health programs based on factors 
such as site visits to the wholesaler's facility and a review of the 
wholesaler's quality assurance practices and procedures. According to 
CDC officials, CDC requires its implementing partners to follow 
program-specific quality assurance requirements. For example, CDC's 
implementing partners must follow the same requirements as the 
USAID/PMI program when procuring malaria drugs and as the PEPFAR 
program when procuring antiretroviral drugs. The Global Fund requires 
grant recipients to procure antiretroviral, tuberculosis, and malaria 
drugs that are prequalified by the World Health Organization or 
authorized by a stringent regulatory authority. When there is only one 
drug available or no drug meeting these requirements, grant recipients 
may procure drugs recommended for use by an independent expert review 
panel convened by the Global Fund. 

Procedures for monitoring drug quality in supply chains used by global 
health programs vary based on the nature of the program and capacity 
of implementing partners. USAID takes a case-by-case approach to 
monitoring drug quality by considering factors such as the 
vulnerability of drugs to deterioration and the capacity of 
implementing partners to safeguard them. To monitor supply chains, 
USAID may maintain chain of custody until delivery, or conduct 
postshipment testing to verify the active ingredients of drugs. To 
help ensure drug quality, USAID may also provide assistance to 
implementing partners in host countries, such as technical assistance 
designed to improve management capacity. Officials told us CDC's 
monitoring procedures vary based on the size and complexity of CDC's 
agreement with an implementing partner. For example, for agreements 
covering large or multiple regions, CDC may require quarterly site-
level reports on drug usage or on-site reviews of pharmacy records and 
storage. For smaller agreements, such as those covering a one-time 
purchase of drugs for a single country, CDC advises implementing 
partners on drug storage and usage. The Global Fund requires grant 
recipients to have quality assurance systems in place for procurement, 
warehousing, product testing, distribution, and monitoring of storage 
and distribution sites, and to ensure that drugs are randomly tested 
at different points in the supply chain. The Global Fund's local 
agents verify these quality assurance practices before grant funds are 
disbursed. 

A recent USAID initiative aims to increase drug procurement and supply 
by host governments and local organizations. However, as highlighted 
in recent reports, reliance on these implementing partners potentially 
introduces risks related to capacity and corruption. According to 
USAID global health officials, USAID is taking measures to mitigate 
theses risks by (1) conducting country assessments to identify risks 
to drug quality, program outcomes, and financial management and (2) 
taking steps to develop risk mitigation plans with implementing 
partners before funding malaria and reproductive health programs. 

We are not making any recommendations in this report. 

For additional information on the results of our review, see the 
briefing slides in the enclosure. 

Agency Comments: 

We provided a draft of this report to USAID, CDC, and the Office of 
the Global AIDS Coordinator, and the Global Fund for review and 
comment. USAID and the Global Fund provided technical comments, which 
we incorporated as appropriate. USAID officials clarified that USAID 
provides administrative approval for antiretroviral drugs; only the 
U.S. Food and Drug Administration (FDA) has the regulatory authority 
to approve these drugs. All antiretroviral drugs procured by USAID 
meet FDA standards. 

We will send copies of this report to appropriate congressional 
committees, the Administrator of USAID, the Director of CDC, and the 
Global Fund liaisons at the Office of the Global AIDS Coordinator and 
the U.S. Mission in Geneva. In addition, this correspondence will be 
available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions concerning this report, please 
contact David Gootnick at (202) 512-3149 or gootnickd@gao.gov or 
Marcia Crosse at (202) 512-7114 or crossem@gao.gov. Jim Michels 
(Assistant Director), Kay Halpern, Erika Navarro, and Chad Davenport 
made key contributions to this correspondence; Grace Lui and David 
Dayton provided technical support. Contact points for our Offices of 
Congressional Relations and Public Affairs are found on the last page 
of this report. 

Signed by: 

David Gootnick: 
Director International Affairs and Trade: 

Signed by: 

Marcia Crosse: 
Director Health Care: 

Enclosure: 

[End of section] 

Enclosure: 

Ensuring Drug Quality in Global Health Programs: 

Briefing for Congressional Requesters: 

For more information, contact David Gootnick at gootnickd@gao.gov. 

Figure: [photograph: A community worker explains preventative malaria 
treatment to a pregnant woman in Mali. Copyright © UNICEF/MLIA2009-
00123/GiacomoPirozzi]  

Overview: 
* Objectives and Scope; 
* Methodology; 
* Background; 
* Summary; 
* Drug Procurement Requirements; 
* Supply Chain Monitoring; 
* Looking Ahead. 

Figure: [photograph: A woman and her baby receiving medication at a 
Kenyan clinic. Source: GAO] 

Objectives and Scope: 

In response to your concerns, we examined: 

* the regulatory and policy requirements intended to ensure the 
quality of drugs procured with U.S. aid funds; and; 

* the systems in place to monitor drug quality in supply chains used 
by programs receiving U.S. aid funds. 

Scope: 

* Drugs and other commodities with pharmaceutical ingredients (e.g., 
test kits, hormonal contraceptives, vaccines) purchased by the U.S. 
Agency for International Development (USAID), the Centers for Disease 
Control and Prevention (CDC), and the Global Fund to Fight AIDS, 
Tuberculosis and Malaria (Global Fund) for use in global health 
programs. 

Methodology: 

We reviewed relevant laws, regulations, agency policy guidance, and 
standard operating procedures relating to assurance of drug quality 
and supply chain monitoring, as well as reports on program 
implementation. We also interviewed USAID, CDC, and Global Fund 
officials. 

We conducted this performance audit from February 2012 through August 
2012 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background:  

U.S. Support for Global Health Programs: 

The United States supports global health programs, primarily through 
USAID and CDC, and by providing 27 percent of total contributions to 
the Global Fund. 

* President’s Emergency Plan for AIDS Relief (PEPFAR) provides 
antiretroviral treatment to more than 3.9 million people. 

* President’s Malaria Initiative (PMI) has procured and distributed 
over 67 million malaria treatments. 

* Global Fund provides antiretroviral drugs to about 3.3 million 
people, has supported tuberculosis treatment for 8.6 million, and 
enabled treatment of 170 million cases of malaria. 

Dangers and Causes of Substandard Drugs: 

Substandard drugs can have serious public health consequences: 

* Lead to ineffective treatment of diseases; 

* Cause adverse reactions in patients; 

* Promote drug resistant strains of pathogens. 

Causes of substandard drugs: 

* Poor manufacturing practices; 

* Improper storage or distribution; 

* Tampering. 

Challenges to Ensuring Drug Quality: 

* Global pharmaceutical industry’s increasing reliance on foreign 
manufacturers[A] creates oversight challenges for the U.S. Food and 
Drug Administration (FDA). 

* Risk of drug theft and diversion to informal markets is high in 
developing countries and can result in tampering, improper storage, 
and inappropriate use. 

* Malaria drugs may be at particular risk for theft and diversion due 
to: 

- High demand because of common practice of treating all fevers in 
endemic areas with malaria drugs; 
- High price of certain new malaria drugs in informal markets in 
Africa. 

[A] According to the FDA, the number of drug products manufactured at 
foreign establishments has more than doubled since 2002, with China 
and India accounting for the greatest shares of this growth. 

Entities Involved in U.S.-Supported Global Health Assistance Programs: 

USAID, CDC, and Global Fund provide grants, contracts, or cooperative 
agreements to implementing partners, such as: 

* Host country governments (generally low and lower-middle income 
countries); 

* For-profit development assistance firms; 

* Nonprofit, nongovernmental organizations; 

* United Nations organizations. 

Implementing partners execute health activities with drugs they 
procure from vendors, such as: 

* Manufacturers; 

* Wholesalers. 

Steps for Ensuring Drug Quality: 

* Determining that regulatory bodies have assessed drug quality at the 
point of manufacture; 

* Conducting assessments of selected wholesalers; 

* Monitoring the supply chain to verify that drug quality has not been 
compromised; 

* Methods used for one or more of these steps: 

- Document review or on-site inspection to check conformance with 
standards; 

- Testing drug samples; 

- Monitoring patients for adverse reactions•Other quality assurance 
procedures. 

Summary: 

* U.S.-funded global health programs have regulatory and policy 
requirements to help prevent procurement of substandard drugs. 

* Procedures for monitoring drug quality in supply chains—-through 
which goods travel from their point of origin to the point of 
consumption-—vary based on nature of program and capacity of 
implementing partners. 

* Involving host countries in drug procurement and supply chains 
entails heightened risk. 

- Evaluations of U.S. and multilateral programs have highlighted this 
risk. 

- A new U.S. initiative to increase host country role includes 
measures to mitigate risks. 

Regulatory and Policy Requirements: 

USAID Reviews Quality Assurance Information for All Drugs Before They 
Are Procured: 

* Implementing partners must obtain written approval from USAID prior 
to procuring drugs. 

* This approval is for a specific drug from a specific manufacturer 
and site, or from a specific procurement agent or other source. 

* Through this process, USAID determines whether it has sufficient 
information available on the quality of a drug, such as: 

- Prior approval by the FDA or a comparable Stringent Regulatory 
Authority (SRA)[A]; 

- Results of prior product testing by independent laboratory; 

- Proposed use of drug, such as clinical use or field trials. 

[A] As used in USAID guidance, an SRA is a drug regulatory body that 
closely resembles FDA in the standards it uses. SRAs include, for 
example, regulatory bodies in Japan, Europe, and Canada. 

USAID’s Review Process Varies for Some Drugs: 

USAID’s review process varies depending on drug and program needs. For 
example: 

* Malaria drugs are reviewed on a case-by-case basis due to their 
limited availability. 

* For antiretroviral drugs and HIV test kits, USAID has created lists 
of approved products. 

[Figure: photograph: Malaria medication and a positive test result lie 
on the paperwork of a child in Sierra Leone. Copyright © 
UNICEF/NYHQ2010-1022/Olivier Asselin]  

USAID Review Process for Malaria Drugs: 

According to USAID, under the malaria program: 

* USAID reviews and documents evidence of drug safety and quality, 
including: 

- FDA or SRA approval; 

- Prequalification by the World Health Organization (WHO). 

* Inclusion in WHO malaria treatment guidance. 

* USAID arranges preshipment quality testing for any malaria drugs not 
approved by FDA or another SRA. 

* USAID has also developed special handling procedures for each type 
of malaria product, used as needed, including: 

- Postshipment testing for drugs; 

- Postshipment inspection for diagnostic products. 

USAID Requirements for Antiretroviral Drugs and HIV Test Kits: 

Implementing partners can procure antiretroviral drugs and HIV test 
kits on USAID’s approved lists. 

* Drugs must have FDA approval or tentative approval,[A] or USAID 
approval, where USAID has information attesting to drug “safety, 
efficacy and quality.” 

* Kits must have FDA or SRA approval, or must be evaluated by USAID to 
determine whether the kits meet documentation requirements and pass 
testing by CDC. 

[A] As used in USAID guidance, FDA tentative approval means the drug 
meets FDA standards but may not be sold in the United States due to 
existing patents or data exclusivity agreements. 

USAID Prequalifies Wholesalers: 

In some cases, implementing partners purchase drugs from wholesalers 
instead of directly from manufacturers. 

USAID has prequalified selected wholesalers as an additional quality 
assurance measure, based on factors such as: 

* Site visit to wholesaler’s facility; 

* Review of quality assurance practices and procedures 

Some prequalification requirements vary by program, such as: 

* Periodic, risk-based sampling/testing for HIV/AIDS and reproductive 
health drugs; 

* Possible audit of manufacturing sites and follow-up review and 
monitoring of wholesalers for reproductive health programs.  

CDC’s Implementing Partners Follow the Requirements of Individual Aid 
Programs: 

According to CDC officials, 

* CDC provides funding to implementing partners to procure drugs for 
use in global health programs but does not generally procure drugs 
directly. 

* CDC’s funding agreements with implementing partners reference 
program-specific quality assurance requirements. For example, 
implementing partners are to: 

- Follow the same requirements as USAID/PMI and PEPFAR programs for 
malaria drugs, and antiretroviral drugs and HIV test kits, 
respectively; 

- Require WHO pre-qualification for all vaccines and drugs for 
neglected tropical diseases. 

Global Fund Requires Approval of Drugs Procured: 

Global Fund provides grants for procurement of antiretroviral, 
tuberculosis, and malaria drugs, which must be: 

* WHO prequalified or authorized by an SRA, or; 

* Recommended by an independent expert review panel, convened as 
needed[A] by the Global Fund: 

- Panel may review potential risks and benefits associated with use of 
the drug. 

- Panel recommendation is valid for 12 months or until the drug is WHO-
prequalified or authorized by an SRA. 

[A] The panel is convened when there are no drugs available that are 
WHO prequalified or authorized by an SRA, or if there is only one such 
drug available. 

Systems for Monitoring Supply Chains: 

USAID Monitoring of Drug Quality in Supply Chains Varies by 
Implementing Partner: 

USAID monitors drug quality in supply chains through implementing 
partners. 

USAID takes a case-by-case approach to monitoring drug quality in 
supply chains by considering factors such as: 

* Vulnerability of drugs to deterioration and tampering. 

* Capacity of implementing partners, e.g., host country governments, 
to safeguard drugs and provide appropriate storage and distribution 
conditions. 

USAID’s monitoring approach for specific programs and implementing 
partners includes: 

* Maintaining chain of custody until delivery to host country. 

* Postshipment testing to verify active ingredients of drugs or 
accuracy of diagnostic kits. 

* Periodic product evaluations to ensure conformance to specifications. 

USAID Provides Assistance to Help Ensure Drug Quality: 

USAID has provided assistance intended to strengthen safeguards for 
ensuring drug quality in host countries. 

* USAID has funded technical assistance designed to improve 
implementing partners’ management capacity. 

- In Zimbabwe, for example, USAID collaborated with the health 
ministry to streamline distribution of malaria and tuberculosis drugs 
to reduce stockouts and expired drugs. 

* USAID has funded establishment of new supply chains. 

- In Malawi, for example, USAID created its own, more secure supply 
system for malaria products due to concerns over diversion of malaria 
drugs. 

CDC’s Monitoring of Drug Quality Varies by Implementing Partner 
Agreement: 

According to CDC officials, CDC’s monitoring procedures vary based on 
size and complexity of implementing partner agreement. 

* For agreements covering large or multiple regions, CDC requires some 
or all of the following: 

- Monthly, semiannual, and/or annual reports; 
- Quarterly site-level reports on drug usage; 
- On-site reviews of pharmacy records and storage; 
- Site visits and other interactions with implementing partners. 

For simpler or smaller agreements,[A] CDC advises implementing 
partners on proper drug storage and usage. 

[A] For example, an agreement covering a one-time purchase of drugs 
for a single country. 

Global Fund Grant Recipients and Local Agents Monitor Supply Chains: 

Global Fund grant recipients are required to have quality assurance 
systems in place for procurement, central warehousing, product 
testing, distribution, and monitoring of storage and distribution 
sites. 

Grant recipients are required to ensure that drugs are randomly 
sampled and tested by qualified laboratories[A] at different points in 
the supply chain, from initial receipt to delivery to end users. 

Grant disbursements are contingent on verification of quality 
assurance practices by Global Fund’s local agents.[B] 

[A] Laboratories qualified by WHO or the International Organization 
for Standardization (ISO). 

[B] Global Fund contracts with external organizations, such as 
PricewaterhouseCoopers and KPMG, to oversee grants. 

Looking Ahead: 

Relying on Host Countries’ National Health Systems Can Be Risky, 
According to Reports: 

Evaluations of U.S. malaria program and Global Fund have highlighted 
risks associated with host country management of drug supply chains. 
For example: 

* External review of the President’s Malaria Initiative[A] reported in 
2011 that some host country malaria drug procurement, storage, and 
distribution systems were subject to large-scale theft and corruption. 

* Independent review of Global Fund[B] reported in 2011 on quality 
assurance shortfalls by Global Fund grant recipients, typically host 
governments. 

- Recipients had not consistently complied with Global Fund 
requirements, increasing risk of patients receiving counterfeit or 
substandard products. 

- Few had systematically tracked adverse patient reactions. 

[A] External Evaluation of the President’s Malaria Initiative Final 
Report, prepared by J. Simon, K. Yeboah-Antwi, A. Schapira, M. 
KabirCham, R. Barber-Madden, and M. Ibrahim Brooks through the Global 
Health Technical Assistance Project, for review by the U.S. Agency for 
International Development, December 2011. 

[B] Turning the Page from Emergency to Sustainability, The Final 
Report of the High-Level Independent Review Panel on Fiduciary 
Controls and Oversight Mechanisms of the Global Fund to Fight AIDS, 
Tuberculosis, and Malaria, September 19, 2011. 

New USAID Initiative to Increase Host Country Role Includes Measures 
to Mitigate Risks: 

New USAID initiative aims to increase drug procurement and supply by 
host governments and local organizations. 

Reliance on these implementing partners potentially introduces risks 
related to capacity and corruption. 

USAID is conducting country assessments to identify risks to: 

* Drug quality; 

* Program outcomes; 

* Transparency, accountability, and communication; 

* Financial management. 

USAID plans to work with implementing partners to develop risk 
mitigation plans before funding them for malaria and reproductive 
health programs. 

[End of briefing slides] 

Footnote: 

[1] This review was conducted in response to a 2010 request from 
Representative Gregory Meeks--then Chairman, House Financial Services 
Subcommittee on International Policy and Trade--to review the safety 
and effectiveness of prescription medicines being purchased by USAID. 
By 2012, other Members had joined on as requesters and we commenced 
the review when staff with the required skills were available. 

[End of section] 

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